CHICAGO–(BUSINESS WIRE)–Kemper Corporation (NYSE: KMPR) reported
net income of $6.5 million, or $0.10 per diluted share, for the fourth
quarter of 2018, compared to $36.9 million, or $0.71 per diluted share,
for the fourth quarter of 2017. In the fourth quarter of 2018, net
income included a $60.4 million after-tax loss, or $0.93 per diluted
share, attributable to the change in fair value of equity and
convertible securities. As adjusted for the acquisition of Infinity
Property and Casualty Corporation1, net income was $27.0
million, or $0.41 per diluted share, for the fourth quarter of 2018,
compared to $51.6 million, or $0.79 per diluted share, for the fourth
quarter of 2017.

Adjusted consolidated net operating income2 was $59.9
million, or $0.91 per diluted share, for the fourth quarter of 2018,
compared to $31.0 million, or $0.60 per diluted share, for the fourth
quarter of 2017. These results increased primarily from the continued
profitable growth in Specialty Property & Casualty Insurance segment and
continued improvement in Preferred Property & Casualty Insurance
segment, partially offset by the amortization of the Infinity purchase
accounting adjustments.

Highlights of the quarter include:

Consolidated earned premiums increased by 76 percent, or $457.7
million in the quarter, as reported, 12 percent, or $111.9 million, as
adjusted 1

Specialty Property & Casualty Insurance segment’s earned
premiums increased by 165 percent, or $447.1 million in the quarter,
as reported, or 16 percent, or $101.3 million, as adjusted 1

Investment portfolio generated a pre-tax equivalent annualized book
yield of 4.6 percent in the quarter

“Kemper had a great 2018 with strong earnings and solid operating
performance in our core businesses, and the achievement of several
notable milestones,” said Joseph P. Lacher, Jr., President and CEO.
“Investments in our franchise resulted in record-setting sales and
premium growth in our specialty personal auto business, with
consistently strong results in our health and life businesses and
improving results in our preferred auto and homeowners lines. The close
of our acquisition of Infinity and our refreshed brand represent
meaningful steps forward in the progress on our strategic plan to focus
on long-term, profitable growth.”

Three Months Ended

Year Ended

(Dollars in Millions, Except Per Share Amounts) (Unaudited)

Dec 31,2018

Dec 31,2017

Dec 31,2018

Dec 31,2017

Net Income

$

6.5

$

36.9

$

190.1

$

120.9

Income from Continuing Operations

$

5.0

$

35.9

$

188.4

$

119.9

Adjusted Consolidated Net Operating Income2

$

59.9

$

31.0

$

258.4

$

92.5

Impact of Catastrophe Losses and Related Loss Adjustment Expense
(LAE) on Net Income

$

(19.5

)

$

(33.0

)

$

(75.8

)

$

(120.2

)

Diluted Net Income Per Share From:

Net Income

$

0.10

$

0.71

$

3.22

$

2.33

Income from Continuing Operations

$

0.08

$

0.69

$

3.19

$

2.31

Adjusted Consolidated Net Operating Income2

$

0.91

$

0.60

$

4.37

$

1.78

Impact of Catastrophe Losses and Related LAE on Net Income Per
Share

$

(0.30

)

$

(0.64

)

$

(1.30

)

$

(2.32

)

1

As Adjusted is a non-GAAP measure, which is computed by excluding
the impact of purchase accounting and including the historical
results of Legacy Kemper and Legacy Infinity in periods prior to the
acquisition date of July 2, 2018. See “Use of Non-GAAP Financial
Measures” for additional information.

2

Adjusted consolidated net operating income is an after-tax, non-GAAP
financial measure. See “Use of Non-GAAP Financial Measures” for
additional information.

Capital

Total Shareholders’ Equity at the end of the quarter was $3,050.1
million, an increase of $934.5 million, or 44 percent, since year-end
2017 driven by the acquisition of Infinity and net income. During the
fourth quarter of 2018, Kemper repaid $215 million of the $250 million
term loan facility that was used to facilitate the funding of the
acquisition of Infinity. Kemper ended the quarter with cash and
investments at the holding company of $100.6 million, and the $300
million revolving credit agreement was undrawn.

During the fourth quarter of 2018, Kemper paid dividends of $15.6
million.

Kemper ended the quarter with a book value per share of $47.10, an
increase of 15 percent from $41.11 at the end of 2017. Book value per
share excluding net unrealized gains on fixed maturities was $45.40, up
28 percent from $35.57 at the end of 2017, driven by the Infinity
acquisition and net income, partially offset by dividends paid to
shareholders.

Revenues

Total revenues for the fourth quarter of 2018 increased $397.4 million,
or 57 percent, to $1,094.7 million, compared to the fourth quarter of
2017, driven by $447.1 million of higher Specialty earned premiums. On
an as adjusted basis, revenues for the fourth quarter of 2018 increased
$41.2 million, or 4 percent, to $1,094.7 million, compared to the fourth
quarter of 2017, driven by $101.3 million of higher Specialty earned
premiums primarily from higher policies in-force, partially offset by
$76.4 million of lower revenues from the decrease in the fair values of
equity and convertible securities. Net investment income increased $8.7
million to $91.3 million in the fourth quarter of 2018, primarily from
an $8.9 million increase in interest on fixed income securities and a
$4.3 million increase in dividends on equity securities, partially
offset by a $6.6 million reduction in net investment income on the
alternative investments portfolio. Net realized investment gains were
$16.4 million in the fourth quarter of 2018, compared to $11.5 million
last year. Other income increased $0.9 million to $2.0 million in the
fourth quarter of 2018.

Segment Results

Unless otherwise noted, (i) the segment results discussed below are
presented on an after-tax basis, (ii) prior-year development includes
both catastrophe and non-catastrophe losses and LAE, (iii) catastrophe
losses and LAE exclude the impact of prior-year development, (iv)
underlying loss ratio includes loss and LAE, and (v) all comparisons are
made to the prior year quarter unless otherwise stated.

Three Months Ended

Year Ended

(Dollars in Millions) (Unaudited)

Dec 31,2018

Dec 31,2017

Dec 31,2018

Dec 31,2017

Segment Net Operating Income (Loss):

Preferred Property & Casualty Insurance

$

6.0

$

(11.7

)

$

25.7

$

(45.4

)

Specialty Property & Casualty Insurance

48.5

14.3

115.8

56.3

Life & Health Insurance

13.6

25.7

91.5

91.9

Total Segment Net Operating Income

68.1

28.3

233.0

102.8

Corporate and Other Net Operating Income (Loss)

(8.2

)

2.7

25.4

(10.3

)

Adjusted Consolidated Net Operating Income

59.9

31.0

258.4

92.5

Net Income (Loss) From:

Change in Fair Value of Equity and Convertible Securities

(60.4

)

—

(50.8

)

—

Net Realized Gains on Sales of Investments

13.0

7.4

20.9

36.7

Net Impairment Losses Recognized in Earnings

(1.8

)

(2.5

)

(3.6

)

(9.3

)

Acquisition Related Transaction, Integration and Other Costs

(5.7

)

—

(36.5

)

—

Income from Continuing Operations

$

5.0

$

35.9

$

188.4

$

119.9

The Preferred Property & Casualty Insurance segment reported net
operating income of $6.0 million for the fourth quarter of 2018,
compared to a loss of $11.7 million in 2017. Results increased primarily
from Personal Automobile Insurance premium growth and underlying loss
ratio improvements, and lower net catastrophe losses in Homeowners
Insurance, largely due to recoveries from the aggregate catastrophe
reinsurance program. The Preferred Property & Casualty Insurance
segment’s combined ratio improved 13.9 percentage points to 103.9
percent, while the underlying combined ratio increased 4.7 percentage
points to 94.6 percent in the fourth quarter of 2018. The increase in
the underlying combined ratio was driven mainly by an increase in the
underlying loss ratio in Homeowners associated with both the additional
reinsurance purchased and the strong fourth quarter 2017 comparative
underlying results.

The Specialty Property & Casualty Insurance segment reported net
operating income of $48.5 million for the fourth quarter of 2018,
compared to $14.3 million in 2017. Results increased primarily from
strong Personal Automobile growth and profitability, partially offset by
the impact of the amortization of the Infinity purchase accounting
adjustments. On an as adjusted basis, the segment’s net operating income
was $69.3 million in the fourth quarter of 2018, compared to $26.4
million in 2017. The segment’s underlying combined ratio improved 1.1
percentage points to 94.5 percent in the fourth quarter of 2018,
primarily from an improvement in the underlying loss and LAE ratio in
both Personal Automobile and Commercial Automobile, partially offset by
an increase in the insurance expense ratio due to the amortization of
the Infinity purchase accounting adjustments.

The Life & Health Insurance segment reported net operating income of
$13.6 million for the fourth quarter of 2018, compared to $25.7 million
in 2017, primarily driven by higher benefits costs, an increase in
expenses and a reduction in investment income. The Benefits’ ratio was
impacted by an increase in the frequency of claims in comparison to the
fourth quarter of 2017. In terms of the expense increase, about $2
million of the expense increase is related to one-time items. Most of
the remaining increase in expense is tied to volume and non-run rate
business investments that are expensed on as occurred basis.

Unaudited condensed consolidated statements of income for the three
months and year ended December 31, 2018 and 2017 are presented below.

Adjusted Consolidated Net Operating Income is an after-tax, non-GAAP
financial measure computed by excluding from Income from Continuing
Operations the after-tax impact of 1) loss from change in fair value of
equity and convertible securities, 2) net realized gains on sales of
investments, 3) net impairment losses recognized in earnings related to
investments, 4) acquisition related transaction, integration and other
costs, 5) loss from early extinguishment of debt and 6) significant
non-recurring or infrequent items that may not be indicative of ongoing
operations. Significant non-recurring items are excluded when (a) the
nature of the charge or gain is such that it is reasonably unlikely to
recur within two years and (b) there has been no similar charge or gain
within the prior two years. The most directly comparable GAAP financial
measure is Income from Continuing Operations.

Kemper believes that Adjusted Consolidated Net Operating Income provides
investors with a valuable measure of its ongoing performance because it
reveals underlying operational performance trends that otherwise might
be less apparent if the items were not excluded. Loss from Change in
Fair Value of Equity and Convertible Securities, Net Realized Gains on
Sales of Investments and Net Impairment Losses Recognized in Earnings
related to investments included in the Company’s results may vary
significantly between periods and are generally driven by business
decisions and external economic developments such as capital market
conditions that impact the values of the Company’s investments, the
timing of which is unrelated to the insurance underwriting process. Loss
from Early Extinguishment of Debt is driven by the Company’s financing
and refinancing decisions and capital needs, as well as external
economic developments such as debt market conditions, the timing of
which is unrelated to the insurance underwriting process. Acquisition
Related Transaction, Integration and Other Costs may vary significantly
between periods and are generally driven by the timing of acquisitions
and business decisions which are unrelated to the insurance underwriting
process. Significant non-recurring items are excluded because, by their
nature, they are not indicative of the Company’s business or economic
trends.

A reconciliation of Income from Continuing Operations to Adjusted
Consolidated Net Operating Income for the three months and year ended
December 31, 2018 and 2017 is presented below.

Diluted Adjusted Consolidated Net Operating Income Per Unrestricted
Share is a non-GAAP financial measure computed by dividing Adjusted
Consolidated Net Operating Income attributed to unrestricted shares by
the weighted-average unrestricted shares and equivalent shares
outstanding. The most directly comparable GAAP financial measure is
Diluted Income from Continuing Operations Per Unrestricted Share.

A reconciliation of Diluted Income from Continuing Operations Per
Unrestricted Share to Diluted Adjusted Consolidated Net Operating Income
Per Unrestricted Share for the three months and year ended December 31,
2018 and 2017 is presented below.